Question

9. You plan to purchase a house for $250,000 using a 30-year mortgage obtained from your local bank. You will make a down payment of 20 percent of the purchase price and monthly payments. You will not pay off the mortgage early. Your bank offers you the following two options for payment: i blaivini l Option1: Mortgage rate of 5.25 percent and I point. Option2: Mortgage rate of 5 percent and 2.5 points. bloy Trolovi po brol a. Calculate your monthly payments on this mortgage under Option 1 and Option 2. (6 points) b. Calculate the monthly mortgage payment savings under Option 2 compared to Option 1. (2 points) c. Calculate the present value of the monthly mortgage payment savings over the next 15 years. (4 points) d. Calculate the upfront fees under Option 1 and Option 2. What's the difference in upfront fees under Option 1 and Option 2? (3 points) e. If you want to keep the house for 15 years, which option should you choose? Why? (2 points)

Answer 1

Purchase > $ 250000 price Down payment = 20% Loom to be = 250000 (2-20%) taken 200000 $ 7 - option 1 Opdon 2 mortgage rate of 5.25% & 1 point 2 5% and 2.5 point: Note - 1 point means If we pay 1% of amt f loan as uppent fees then C 0.25% for 1 point would be reduced form Rate of interest Hence under/Option 1 aterest = 5.25% (-) 0.257. (17.(*2 200000)-20,000ft is - 50 I paid as uppent fees Lophon2 Rate of Interest = 5% (-) 2:50) 0.257 Cie o.2sifor 1 poms) 25% ( 0.6257. ! E 4.3754) @ Morthly payment conder (often 23 RICO= PUCI (het monthly paymut be x) 2,00,000 = [(x, 3oyears) (5). Jy 200000 = 2c (15.37) 200000 22 (13010 . payment under often (2) 15.3734 16 Obame content 4.3757) 200ow = 200000 - 16:53 2 20000 ax 1653 ned with CamScanner (12098) - monthy payons under optn

(6 Monthly mortgage lening unde optim 2 2 b 1 gge brings unde option = 12098 = 130 10 Javings non (6) PV of laving over next is ypa of monthly payments pro 21, 195go), 4.3 s Tour Savings would asese motore 5 911 x) 10-83 986834 80 12 2 d up pont fees under option 1 and optim 2 Obhin 1 - I paint o 1%. A) 200000 = $ 2000 obrimen 72.5 point of 251. (2000w - $ sowo. 6 Difference in uppont fees = $3000 (500 G 2000 e of want to keep house for 15 years opthin 1 puce a [[3010, 51), \sym) 69 2000.9 (1370338 optione peco (12018, 4.322) (Isya)) to 5000 a (136050.37 As outflow under opton (2) is les herce/option (22 shall be preferred CamScanner